Editor's note: This column by Peter Eavis was originally published on Jan. 7, 2002. At the time, he examined the problems facing Conseco and warned investors that the company could be forced to file for bankruptcy protection before the end of the year. His analysis proved to be prophetic -- the consumer finance company filed for bankruptcy on Wednesday. Next year, Eavis' columns will be available only on RealMoney.com, TheStreet.com's sister site.
Conseco, 1982-2002? While the lender and insurer may well try one last bid for survival, it's almost impossible to see how this debt-laden and cash-starved company can stave off a bankruptcy filing this year. After a truly horrible 2001, the bad news has been quick to come in 2002. On Thursday, GreenPoint Financial ( GPT), a rival mobile-home lender, said it was exiting the business and forecast that bad-loan losses would skyrocket. The bombshell for Conseco ( CNC)? Applying GreenPoint's projections to Conseco's $25 billion of mobile-home loans would result in losses of $3.5 billion. If a loss of this size materializes, it would eat a huge hole in the balance sheet of Conseco Finance, Conseco's lending subsidiary, and leave that entity in breach of its bank loan covenants. Granted, Conseco's own loss estimates are much lower than GreenPoint's, but analysts believe GreenPoint is more conservative and accurate in its accounting and credit forecasts. Also Thursday, Conseco announced that Conseco Finance's chief executive Bruce Crittenden had resigned, to be replaced by Charles Cremens. Then Friday, Salomon Smith Barney analyst Colin Devine, a longtime Conseco bear, downgraded the company's stock to sell, pointing to further deterioration of credit quality and GreenPoint's loss projections. The stock tanked 16% Friday; it was down 66% in 2001. Conseco didn't respond to requests for comment. Detox wrote frequently on Conseco in 2001.